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If forecasters are correct, the United States should run out of natural gas storage space by October – a short 5 months away. Thanks to the natural gas rush on the Eastern coast in the Marcellus shale, an unseasonably warm winter – and a mild summer predicted, there’s little chance for producers to unload some of that glut without further dropping the already low price of natural gas in the market.

A few weeks ago the Wall Street Journal ran an article predicting this gas storage problem. Chesapeake Energy has already determined it will be curbing production, (Big surprise move, right? thanks to Aubrey McClendon), following a trend producers are seeing across the country with natural gas drilling rig counts down nearly 20 percent already this year.

According to the Department of Energy, 120 gas storage operators maintain about 400 underground facilities made up of aquifers, depleted oil and gas reservoirs and salt caverns with a working gas capacity of nearly 4 trillion cubic feet. These storage facilities are mostly heavily concentrated near major eastern and mid-America markets, with some in Texas, Oklahoma, California, Colorado and surrounding areas.

Not only are we running out of space to store the gas glut, but nearly 25 percent of the existing pipelines used to deliver gas across the country are more than 50 years old. In 2004, it was projected that nearly $19 billion of investment would be needed to replace the current pipe simply to maintain existing capacity. That was before the Marcellus shale became a household name. Nearly $42 billion was estimated to be needed for new pipeline and storage projects on top of that.

Naysayers argue that the U.S. will never actually run out of natural gas storage, and data – while slightly outdated from the U.S. Energy Information Administration suggests that to be true. According to whom you talk to, and more importantly, what numbers and equations you use, you can get entirely different numbers for what “percent” full we are today. Back in 2003, with the data the U.S. Department of Energy used, that percentage ranged from 79 to 95 percent full with calculations differing based on the equation, not numbers used.

So which is it? Are forecasters merely presenting a doomsday approach to the natural gas market, much like we producers already see and feel? Or is there something to the idea that the market will soon be so saturated that space will run out?

New technology may change the face of hydraulic fracturing – and it couldn’t come at a better time. Amidst heated debates across the country regarding hydraulic fracturing, waterless hydraulic fracturing claims to offer oil and gas companies an alternative to traditional hydraulic fracturing that is environmentally friendly and cost-effective.

GasFrac, a Calgary-based company, is paving the way with a technique to fracture wells using LPG, short for liquid petroleum gas. LPG uses a mixture of propane that’s pressurized to make a gel. This gel is then injected into the rock formations like traditional hydraulic fracturing is done to break apart the shale and allow the trapped oil and gas below the earth to surface.

The benefits of using LPG is that instead of using millions of gallons of water to break apart the shale, which then have to return to the surface including the small percentage of chemicals added to boost the productivity, the propane will revert to a vapor while underground, which can then be collected when it comes to the surface.

While GasFrac is reported to charge a high premium for its services – something close to 50 percent – producers who have used the technology in states such as Texas, Colorado and Canada say it is worth it based on the money saved from not having to purchase, transport and truck all the water needed to fracture the wells, and then by not having to dispose of all the chemically-laden flow back water that returns to the surface once a well has been fracked.

By the end of the month, two test wells in northern Ohio in the Utica Shale are expected to be drilled and fractured using LPG, as some producers aren’t convinced water is necessary to extract from the Utica Shale.

The technique could also prove to be a boon for drillers in Tioga County, New York, where a moratorium has been in effect on hydraulic fracturing since 2010. A planned drilling site is expected to use LPG to fracture the well.

But, like anything else in the oil and gas industry, these new technology is not met without opposition from environmentalists who claim that while it may stop potential water pollution, it will instead create a greater threat with a high risk of explosions.

More than 1,200 wells have been drilled with GasFrac since its introduction to the oil and gas world with favorable results. With the rest of the country watching to see how these wells on out on the East Coast, it could soon turn this debate on a head.

What do you think of LPG technology? Would it benefit your company and be cost-effective and more safe for the environment?

Who will take your job when you retire? Fill your shoes? Run your business? Work in the field? Is there anyone working at your office younger than 35? With an entire generation of oil and gas industry icons retiring soon – have we, in the United States, done enough to prepare our industry to move forward in the future to provide the country’s energy needs?

Last week the United Kingdom’s The Telegraph ran an interesting article called “Attracting ‘Generation Y’ to the Oil & Gas Industry.” The article was not the first on the topic that I’ve seen out of the UK — an interesting trend when you consider that the oil and gas industry in America – where the article is referring to – is doing largely nothing to attract a new generation.

This phenomenon of the main generation of oil and gas workers exiting the industry in the next five or so years is not a new one. Anyone in the industry could tell you this is one of the biggest challenges the industry faces next to regulations and hostile governments. What I found interesting in this article though – was how it defined who ‘Generation Y’ is and how the industry should be sold to them. While I suspect that this article was heavily slanted towards a specific oil and gas recruiting company – the information provided about the industry was enlightening.

An interesting challenge the oil and gas industry faces in recruiting ‘Generation Y’ workers (born between 1980 -1995) is that this generation has subliminally, and perhaps not so subliminally in recent years, grown up discussing the oil and gas industry primarily in regards to its failures and highly publicized disasters. New technologies and new discoveries in oilfields and shales rarely receive much time in the media like hydraulic fracturing and its often-claimed-but-not-proven link to water pollution, and air pollution do.

In a world where going green and renewable energy are the next big thing – seducing a generation that bounces from one fad to the next as quickly as Facebook updates its design – is not an easy task. Especially if those trying to do the seducing don’t understand how ‘Generation Y-ers’ think.

‘Generation Y’ is a generation that thinks on the go and makes decisions on the go. It’s a generation more generally aware of its surroundings and events than the previous generations – but also one that doesn’t dwell long on the details and facts.

Having grown up in the world of status updates, tweets, text messages and e-mails, everything they know, learn and process about the world can come in a 140 characters, a sound bite or be found on Google.

For this generation to fit into our industry, it also means that as the world and our country continues to diversify and be more inclusive, that the Good Ol’ Boys club that primarily runs the industry will reach out and become more inclusive as well.

The current oil and gas industry needs to promote itself not only as a necessity to the future of America’s energy (especially as renewable energy sources just won’t rise up to their hype for a long time) but also as a time-tested, stable, safe, environmentally conscious industry.

It’s time the oil and gas industry stopped only touting its need for a world with hydrocarbons and began imploring the future generation of workers ,including generations to come, that someone needs to take responsibility for the exploration, production, transportation and refinement of America’s energy. This will become more important as the political climate changes each season and the regulations get increasingly more stringent, and the oil and gas increasingly harder to obtain.

Help promote the industry to the future generation so that there will continue to be a future in energy development in this country.

What strides have you seen the industry make in regards to attracting a younger generation? What can they do better?

Ohio’s Governor John Kasich’s proposal to raise the state’s severance tax against the oil and gas industry 4 percent over the next three years is stalled at the Statehouse amidst heated debate between industry critics and those who support the oil and gas industry.

I’ve recently read articles and opinions on both sides of the spectrum and honestly, feel like I’m missing something to see the whole perspective correctly. Before we break down the two views here, understand the current severance tax rates in the state and what is proposed.

Severance taxes are collected based on extraction of natural resources from Ohio soil or water. Currently oil and gas producers pay $.03 per MCF of natural gas and $.20 per BBL of oil (which is currently around 1 percent).

Kasich’s proposal is to slowly raise the severance tax rate to 4 percent over the next three years – bringing in an estimated $973 million to be used for income tax cuts statewide.

Ohio Oil & Gas Industry view:

The Ohio Oil & Gas Association immediately came out swinging against the proposal when Kasich announced it, countering that it will make for a bad business climate in the state and drive away potential investors that could boost the state’s drilling in newly-discovered Utica shale.

The Association also released a fact sheet about Ohio severance taxes and included this chart comparing the severance taxes of four surrounding states to Ohio. You can see that Ohio falls in the middle in regards to the percentage or amount that producers have to pay based on the minerals extracted.According to OOGA’s fact sheet, both West Virginia and Michigan, who have higher severance tax rates, have seen decreased oil and gas investment and drilling in the past five years since, while Pennsylvania, which has no severance taxes and only an impact fee for drilling, has seen a 600 percent increase in drilling.

OOGA also counters that in 2008 Arkansas implemented a similar increase in state severance taxes and has since seen drilling activity decline by 50 percent.

While the Governor claims that the industry doesn’t pay enough in taxes and that this tax increase will boost the economy – the industry adamantly claims that’s not the case.

Because the Utica shale is in its infancy, it will take several years to determine the viability of the formation, said the Association. If the cost of doing business becomes too high before enough investors can invest in the new shale play, they will take their investments somewhere else.

The Governor’s view:

Kasich – who’s largely known for his ability to cut budget and close deficits – has proposed a fairly modest increase in the severance tax if you look at Texas and Oklahoma, which both have a 7 percent or higher rate, and Michigan and Pennsylvania, which both have 5 percent or higher.

At an Ohio Energy Jobs Summit a few weeks ago Kasich was quoted by the Associated Press as saying, “I don’t want all this money to escape Ohio. And our severance tax is going to be at a level that will allow us to be very competitive and it will allow us to reduce our income tax in the state and benefit all families.’’

This is how Kasich’s website describes the tax: “As Ohio oil and gas production increases, so will the income tax cut for Ohioans. Every cent – 100 percent – of new tax revenue from the high-volume horizontal wells like those used in Ohio’s Utica and Marcellus shale formations will be used to reduce income taxes the following year.”

From this perspective, it looks like it will only apply to new wells drilling with a horizontal well – which won’t affect smaller producers across the state that only use vertical wells when drilling. And from this quote – of him putting what he says the tax into perspective – it also seems like a fair tax he’s proposing:

“This is what the oil companies in Ohio are paying in tax on a $107 barrel of oil — 20 cents. I’m not kidding you. Do you understand what I just told you? This is what they pay for taking oil out of our ground and selling it to you, by the way, for $4.30 a gallon,” Kasich said.

My problem with hearing Kasich’s side of the story is that I seem to be missing where the truth lies. I understand that with extreme views you have to take them with a grain of salt. What I would like to hear from the Ohio producers is how this proposed severance tax will really affect you. Reading about it on paper it may not look so bad – but when you see how it works with real numbers, real wells, real lives, it can be a different story.

What will the proposed severance tax increase do for your company? If it passes, do you see it slowing down the drilling in the state?

Idaho, a state with, until recently, no active oil or gas wells, is officially a state with a new industry and top-tier regulations – putting it at a great advantage to move forward amid the fracking debate wracking the nation.

In 2010, Bridge Resources and a partner company, drilled seven exploratory wells and found that natural gas was viable to be commercially produced in the state. However, the company ran into problems with some of its other properties in the North Sea and debts to several banks – halting the project.

Since then, Snake River Oil and Gas, a local oil and gas operator, and AM Idaho, a Texas-based exploration and production company, have joined forces to acquire most of the assets Bridge Resources left behind to move forward in creating a natural gas industry in the state – and conceivably more revenue, jobs and hype to the area.

Statutes and regulations had been in place and adapted from the Interstate Oil & Gas Compact Commission in case oil and gas were found to be viable in the state, said Suzanne Budge, Idaho Petroleum Council Executive Director. But with a flurry of new activity coming to the area and active wells being permitted, Idaho’s Department of Lands began a thorough review of the bare-bones regulations and set about through the state’s rule-making process to redefine the oil and gas drilling process.

What seemingly should have been a quick process because the land leased for drilling will require conventional drilling to a 3,000 – 5,000 foot target, turned into a much larger affair thanks to the nation’s hype over hydraulic fracturing.

In the end, reading through the state’s regulations recently passed, the long process will end up giving the state a leg up in the regulations battle that most of the other states are going to have to start bracing for if the EPA gets its way soon.

The temporary regulations approved on April 19 include specifics such as:

– All drilling applications will be denied unless they include: source of water, trade name and content of fluids, type of proppants, estimated pump pressures, method for the storage and disposal of well treatment fluids, size and design of storage pits, expected fracture length both horizontal and vertical directions, groundwater protection plan and information specific to hydraulic fracturing.

– Certification by professional engineer that all aspects of the well construction, including suitability and integrity of the cement used to seal the well meet requirements

– Integrity testing of the well casing or casing-tubing prior to well stimulation, detailed information to the Commission for each stage of the well stimulation of chemical additives, compounds , concentrations or rates proposed to be mixed and injected including the additive type, chemical compound name and Chemical Abstracts Service

In turn, the applicant can request in writing confidentiality be provided for trade secrets to protect the specific solutions used in fracking.

From the regulations and code regarding oil and gas for several other states that I read through, Idaho is ahead of the industry as far as tackling the sticky subjects of hydraulic fracturing and water contamination.

How different is their regulation than in your state? What do you see changing in your state’s regulations in the future? Will it help or hurt?

Last November I asked our clients to give me three predictions for what would happen to the oil and gas industry and economy during 2012. The following 21 predictions are a compilation of the most popular prediction topics our clients sent in.

We will follow these predictions throughout the year to see how they pan out and how accurate you guys can see the industry’s future.

General Oil & Gas Industry

The industry will be stable for 2012. You will see more of the same from 2011. There will by more shale plays, more debate about hydraulic fracturing and more regulation. – Pete Clute

Growth in the Marcellus drilling will be less than the growth in Utica drilling because of the liquids/gas ration being 30:1 in value. – Mark Swisher

The gas industry will grow exceedingly fast with the Marcellus shale. I’m not sure wht they will do to the little guy and his vertical wells. – Carol Watkins

I predict they will allow us to drill in Alaska in 2012. – Kimberly Ann

Prices

Prices will increase for the general public. A combination of turmoil in other parts of the world and the backlash from the current administration’s clampdown of our own energy independence will drive the production, delivery and therefore user end costs up. – Tonya Aiken

As shale production increases, gas prices will continue to decline. Pipeline capacity may become a problem. – Holly Clemens

Oil prices will continue to creep up with a possible spike when Israel takes on Iran’s nuke program. Most of the creep will be declining dollar value and flight into commodities. – Mark Swisher

Hydraulic Fracturing

I don’t anticipate any significant regulation change during an election year. While there is a lot of noise about hydraulic fracturing, it is essentially the same method that has been used for years. Some states may implement tighter controls or regulations, but most states will allow it to continue as is. It will ultimately be a state by state issue. – Guthrie Chamberlain

Frac technology will contine to improve and also prove that it is NOT a danger to the environment. – Don Lindberg

The hydraulic fracturing debate will continue. I don’t think a law will pass banning the practice, but it might be met with some debate on the topic of water conservation. We might see some new ideas and industries created to clean and reuse the water. – Tonya Aiken

Alternative Energy

Most green energy initiatives will remain cost prohibited and an impractical alternative to current energy supplies. This will not change anytime soon as newer technologies in the exploration and extraction of current oil and gas supplies will allow the use of fields that were not previously cost effective. This is why the Bakken and Marcellus are available today and will play a significant role in the US energy supplies. – Guthrie Chamberlain

Despite pushback from the liberals/environmentalists, there will be movement to establish more infrastruction for natural gas vehicles. – Don Lindberg

Miscellaneous Predictions

Offshore drilling permits won’t increase as much as we’d like. Obama will be trying to appease the Democrats so he can be re-elected. – Pat Johnson

The Bakken fields will produce as expected but the frenzy to drill will slow down and level off. – Juli Pierce

The U.S. will continue to NOT have an effective energy policy by the end of 2012. – Kathy Pritchard

Texas leads the nation in oil production, representing almost 50 percent. I predict this number will fall in 2012 because of the Bakken fields and Marcellus shale. – TJ Hunter

Conventional drilling will slow to a record low number of wells due to gas prices and the Utica Shale frenzy. – Mark Sparr

The regulations will force small independents out of business as only the huge companies will be able to comply. – Mark Stephenson

Ohio Oil & Gas Industry

Despite continuing misplaced criticism of the industry and hydraulic fracturing, Ohio’s governor and ODNR will allow the industry to steadily improve our economy. The eastern half of the state will continue to benefit even though it might not be part of the media storyline. – Holly Clemens

The Utica Shale will cause unprecedented hype and will commence the beginning of the end of the local oil and gas producer. – Tom Csapo

Utica Shale exploration and development will dramatically increase in both the wet gas and oil areas of the state. – Ed Mack

What do you think about their predictions? Are there any others you would add about the industry now that you’ve seen how the first four months have played out?

You know it’s an election year when President Obama does a 180 degree turn of opinion regarding the oil and gas industry in less than 18 months. Two weeks ago three federal agencies announced their partnership to work on the development of unconventional domestic natural gas thanks to an Executive Order from President Obama.

The new interagency, comprised of the U.S. Department of Energy, the U.S. Environmental Protection Agency and the U.S. Department of Interior, is called the Interagency Working Group to Support Safe and Responsible Development of Unconventional Domestic Natural Gas Resources. Phew, what a mouthful. Essentially it means these three government departments will be forced to work together to coordinate current and future research and scientific studies to ensure there is a continued expansion of natural gas and oil production safely and responsibly here in America.

According to a press release from the Department of Energy, “As the President has made clear, domestic natural gas and oil resources will continue to play a key role in America’s energy future. Already, technological advancements like hydraulic fracturing – innovation supported by public research – have allowed development of previously uneconomical natural gas and oil deposits.”

The release further goes on to point out that U.S. oil and natural gas production has increased each year since 2008 (note, since President Obama took office) to reach its highest level in 8 years in 2011. I think if you asked those in the industry, they would say that the United States has had high domestic oil and gas production since 2008 in spite of President Obama’s attempts to sabotage the industry.

Department of the Interior Deputy Secretary David J. Hayes is quoted as saying, “… We are positioning the Obama administration to best meet the critical need of increasing public understanding and public confidence of these critical technologies so that we can continue safe and responsible exploration and production for many decades to come.”

If I had told you in 2011 that President Obama would have created an Interagency with this much support for hydraulic fracturing and domestic production of oil and natural gas, no one would have believed me.

Let’s stroll down memory lane to the post I wrote regarding his lackluster State of the Union address in January 2011 to see how he felt about domestic oil and natural gas production then.

“We need to reinvent our energy policy. I offer a challenge to America’s scientists and engineers. If you can assemble teams with the best minds in your fields and focus on the hardest problems of clean energy, we’ll fund the Apollo projects of our time,” President Obama said towards the beginning of his address.

“With enough research and incentives we can break our dependence on oil with bio-fuels.”

President Obama went on to end his little bit about energy saying this:

“Instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s. Let’s set a new goal that by 2035, 80 percent of America’s electricity will come from clean energy sources.

Perhaps President Obama forgot when he created this Interagency, but 2035 is only two decades away. I didn’t see anywhere in his State of the Union address about his love for the critical technology of hydraulic fracturing to leverage the hard-to-reach-and-make-economical shales that he’s desperate to pull on board for votes this November.

Ironic? I think not. Perhaps he’s banking on the oil and gas industry forgetting last year’s zeal, shoot the past three years’ zeal to punish the industry and his promise to fund his pet clean energy projects by “asking Congress to eliminate the billions of taxpayer’s dollars we are giving to the oil companies. In case you haven’t noticed, they are doing just fine without our help.”

Sorry, Mr. President. I don’t believe the industry has forgotten. It looks like you can do just fine without our help in November.

For the first time in nearly three years, gas prices at the pump haven’t risen significantly year-to-year. If you remember my post from this time last year, I wrote how prices had crept up to nearly $4 per gallon nationwide.

From 2009 to 2011 prices rose by an average of 65 cents per year, according to GasBuddy.com, and only varied by 5 cents between 2011 and today. While my wallet may still be protesting the cost of gas, I am somewhat mollified that it could be much worse today, if the past three years are any indication. Perhaps, I’m resigning myself to the idea that gas is just going to be higher and that’s that.

I read an article recently on Louisiana’s Oil & Gas Association’s blog about cheap gas being a thing of the past, and it was reinforced when I was browsing the Internet today and came across the Debate Club, a site where great minds in our society today debate relevant topics and readers vote for the most compelling argument.

On the topic Is Obama to blame for high gas prices, most readers sided with Daniel Simmons, Director of State Affairs at the Institute for Energy Research that yes, the administration has done little to reduce oil prices.

I, however, found that Severin Borenstein’s, E.T. Grether Professor of Business Economics and Public Policy at U.C. Berkeley’s Haas School of Business, argument that we must prepare the world for higher gas prices resonated much deeper.

He argued that the while it is easy for the public and politicians to blame the President for rising gas prices – in reality, there is little that a President can do to change the prices.

Even if the United States was to increase domestic production (which I do believe we should do, but not necessarily because it will lower the price at the pump), it would only put a dent in the supply and demand chain – leaving prices at around the same that they are.

Borenstein contends that growing demand in China and India, as well as the fact that the actual physical supplier of most of our oil, Saudi Arabia, holds more spare capacity than America could if all federal lands were open to be drilled in the next decade, are to be held responsible for rising prices – and both are factors that won’t be easily changed.

Gasoline is what fuels America – literally and figuratively. According to the Federal Highway Administration’s website, Americans drive on average, 16,550 miles per year which is equivalent to four roundtrips from New York City to Los Angeles.

Our fuel consumption isn’t going to slow down overnight and unless America’s economy begins to plummet again like it did in 2009 when gas prices were so much cheaper, we aren’t going to see much lower prices at the pump.

I love the way the LOGA post ended, and end on the same note: “Cheap gas, or a job and a roof over your head? That’s pretty much what it comes down to.”

What is your perspective on rising gas prices? Can Obama influence prices or should we settle in for higher gas prices?

Senator Inhofe’s House address last week regarding an EPA Regional Administrator’s comments to “crucify” the oil and gas industry to make an example shook the industry over the weekend.

In a 2010 town hall meeting in Dish, Texas, Region VI Administrator Al Armendariz gave a crude analogy regarding “crucifixion” to explain of how the agency intends to handle the oil and gas industry. While the video documenting the speech was up on Friday, it since has been removed in many places online – but with a little digging you may be able to find it.

Here are parts of Armendariz’ quote:

“But as I said, oil and gas is an enforcement priority, it’s one of seven, so we are going to spend a fair amount of time looking at oil and gas production. And I gave, I was in a meeting once and I gave an analogy to my staff about my philosophy of enforcement, and I think it was probably a little crude and maybe not appropriate for the meeting but I’ll go ahead and tell you what I said. It was kind of like how the Romans used to conquer little villages in the Mediterranean. They’d go into a little Turkish town somewhere, they’d find the first five guys they saw and they would crucify them. And then you know that town was really easy to manage for the next few years. And so you make examples out of people who are in this case not compliant with the law.”

Armendariz went on to say, “Compliance can get very high, very, very quickly. That’s what these companies respond to is both their public image but also financial pressure. So you put some financial pressure on a company, you get other people in that industry to clean up very quickly. So, that’s our general philosophy.”

Senator Inhofe brought up this incident with Armendariz to question the impartiality and the EPAs handling of three significant cases for the oil and gas industry, which appear, from the industry’s perspectives to be witch hunts.

The three cases under question that the EPA has been excessively forceful without any evidence are in Dimock, Pa., Parker Country, Texas, and Pavilion, Wyoming.

In all three cases, highly publicized press releases, reports and statements were made to the public regarding what the EPA said is fact that hydraulic fracturing causes water contamination in those areas. Since those releases, the EPA has gone on to find no evidence supporting their publicized claims.

EPA Regional Administrator Armendariz has since apologized for his statements regarding “crucify them,” but I doubt the media lash back will be as easy as he hopes. On Monday, Armendariz resigned from his post over Oklahoma, Texas, Arkansas, Louisiana and New Mexico.

How has the EPA handled the oil and gas industry in your state? Is Armendariz’s principles something widespread among the entire EPA agency?